The Federal Reserve Lowers Rates

So you thought the overnight fed funds rate was the only rate that the federal reserve has authority over?  Today, the fed announced what is the equivalent of printing dollars.  The Federal Reserve is going to buy US Treasurys.   They increase the amount of dollars in circulation, which dilutes the US dollar.  They then take the diluted dollar and buy US Treasurys.  The dollar sold off hard on this news.  Harder than it has since the year 2000.   US equities rallied.   I wrote recently that if the dollar did not find support, it would add fuel to the equity rally.  The drop in the dollar did just that, added fuel to the recent equity rally.

The Bond was up a massive four points.  There must have been blood all over the the bond pits today.  In my view, this move was scripted.  It shouldn’t have caught anyone off guard.  In fact, if you are reading these pages, you may be long Treasury calls.  The move in Treasurys is just getting started and the calls that I spoke of should expand in value to many many times their cost.  The price of the bond and it’s rate have an inverse relationship.  As the bond trades higher, rates go lower.  So the fed has used another tool in its arsenal to ease monetary policy EVEN MORE.

All of this easing will lead to a massive inflationary cycle, which is why Gold and Silver were so strong today.  The move in the metals could not have been scripted better as they sold off hard early in the day,  stopping many out, only to rise from the basement and zoom to the top floor and close near the highs.

My positions remain, bearish REITs, (RIMM) and Visa (V).  Bullish metals and Treasurys.

No matter how bullish the move becomes in US equities, I will remain bearish on the REITs.  They are special situations for a couple of reasons.  First, some of them are using fraudulent accounting.  Second, FFO is a fallacy.  I will write more on the REITs in a later post, but I am going to own puts in many of these names until they trade below $2.  Why?  Becuase they will trade below $2.  How do I know?  Becuase the math cannot lie.  The mathematics will be forced to face their implications.

Peace

The Ten Year

The Rate on the Ten Year

The US Dollar

Silver

S&P 500 has now pulled back to the Golden Ratio